Coffee is pricier after Brazil drought

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Dunkin’ Donuts said it expects a “modest increase in coffee prices” at its shops this year.

By Taryn Luna
Globe Correspondent
June 14, 2014

To save money, Jo Foley usually makes her coffee at home instead of buying it on the go. Now that prices are climbing at the grocery store, the 60-year-old school counselor says she might get rid of her single-cup brewer.

“I just can’t see spending that much money on coffee,” Foley said as she waited for a bus near Downtown Crossing earlier this week.

Many coffee fans would disagree. But they are digging deeper now to pay for the brew that gets them started in the morning.

An unusual drought during the rainy season in Brazil sent coffee futures soaring earlier this year to their highest prices in more than two years. Months later, the effects are trickling down to consumers.

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“Brazil has the largest supply of coffee in the world,” said John DeMuria, managing partner of Volcafe USA, the national branch of the coffee trading company Volcafe Ltd. “If there’s a hiccup in Brazil, everyone feels it.”

Last week, the J.M. Smucker Co. increased prices by 9 percent on its Folgers coffee and on Dunkin’ Donuts packaged products it distributes to retailers. Kraft Foods Group followed a few days later with a 10 percent hike on Maxwell House and Yuban.

Dunkin’ said it expects a “modest increase in coffee prices” at its shops this year, citing rising commodity costs. Starbucks prices haven’t changed, but the company said it’s constantly watching the market. Keurig Green Mountain Inc., the Waterbury, Vt., company that sells billions of K-Cups a year, declined to talk about coffee prices.

Technomic Inc., a restaurant industry research firm in Chicago, said the price of a cup of coffee at quick-service restaurants nationwide increased by 2 percent to $2.29 in the first three months of the year — before the drought had any real effect on retail costs.

But many coffee drinkers, faced with the possibility of rising prices, don’t need to think twice about the choice they would make. They want their coffee and are prepared to pay more.

Damon Syphers, 52, said he drinks about four cups of coffee a day from his Keurig at home or purchased at Starbucks. The doctoral student and consultant from Malden said the $2.45 cup of iced coffee he sipped outside a Starbucks in Downtown Crossing earlier this week would have to jump to $4 before he considered cutting back.

“I need that jolt,” he said.

Wendy Maeda/Globe Staff

Reynaldo Albarado and his daughter, Yaxelis, 6, had breakfast at Dunkin’ Donuts Wednesday.

Nearby, Kendra Higgins of Brockton felt the same way. The 26-year-old fund-raiser said she spends exactly $4.12 a day on two medium-sized cups of Dunkin’ Donuts black coffee, sometimes with a little cream and sugar. Higgins compared her need for coffee to a smoker who continues to buy cigarettes even as costs climb.

“I would still drink it,” she said. “Ten percent is not a big deal, and I need coffee.”

Higgins and Syphers are not alone, said Joe Pawlak, a senior vice president at Technomic. Pawlak says American consumers rarely cut back their java consumption unless the hike is particularly egregious.

‘I just can’t see spending that much money on coffee.’

“Consumers are still very cautious about what they are spending, but this is an affordable indulgence and one they are willing to spend on,” he said. “They’ve been conditioned to have it every morning, and they are used to it.”

It’s difficult to predict how trends on the global coffee commodity market will affect prices in supermarkets and coffee shops. Big retailers typically lock in prices far in advance.

But commodity contracts that serve as the world benchmark for Arabica coffee prices have soared by 57 percent so far in 2014. Earlier this year, the price had risen by 85 percent in fewer than three months.

Wendy Maeda/Globe Staff

Dunkin’ Donuts says it does not yet know how much of a price increase for coffee it will recommend to franchisees.

That jarring trend is all about the rain — or lack of it — in Brazil, which produces about a third of the world’s coffee. The rain season there typically begins in September and continues for about six months. Rain is critical to the development of coffee tree cherries, which contain seeds that are roasted as coffee beans.

The rain arrived on time last fall. The trees flowered and the fruit set, but then the rain stopped uncharacteristically in December and a drought began, DeMuria said.

“The rain season was shortened by three months,” he said. “Soil moisture was diminished, and in many areas, the trees shut down, and a lot of the formation and maturation of the bean didn’t take place.”

A coffee fungus in Central America has made the problem worse.

DeMuria said excess coffee supplies from the last two years eased some of the current shortage. Now prices reflect uncertainty about how the drought might affect future crops.

“The situation isn’t that bad because you have enough working stock to get us through,” he said. “The real question now is how the next crop will do. No one knows because we’ve never had a drought in this particular time period, and we don’t have anything to fall back on.”

Still, coffee shops don’t raise prices carelessly. Even modest increases for their products add up, and many are afraid of charging more than other competitors.

A Dunkin’ spokeswoman said the company has not yet determined the price increase it will recommend to its franchisees, who own most of the stores and have the final say on menu prices.

Prices are a recurring topic of conversation at meetings of the Dunkin’ Donuts Independent Franchise Owners, said Robert Branca, who owns several stores in central Massachusetts. He called coffee Dunkin’s “hero product.” Many customers come in with exact change, and store owners resist increases as much as possible.

“It’s usually the last resort to increase a cup of coffee,” Branca said. “It’s something you do when there are no other options.”